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nexus 5 has the hardware to do it, just not used. the CAF variante of CyanogenMod (http://github.com/CyanogenMod/android_device_lge_hammerheadcaf) has that enabled. No nightelies for the moment but you can build it from source, give it a spin, if you'de like (bear in mind that there's no upgrade path from SW encryption to HW one, ie : a wipe is required to go from on to the other).

Well let's assume you are correct. Just go download the publicly available android update and put it on your phone. If it's just a software component like you say, then it should just work.

What's more so : there is no publicly "available android update" that includes a patch for 4.3-.
If it were in existence, rebuilding the components is easy, getting them on a "unlocked -as in bootloader- phone" is the challenge. But if the bootloader is unlocked, chances are the user is tech savvy and the device is in "the supported devices list" of some custom android project out there (CM/AOKP/OMNIUM/PA to name few).

these are to diffrent types of locks. One is a SIMLOCK : cannot use any other SIM card, the other is bootloader LOCK (no way of installing anything other than the SIGNED/blessed OS/FIRMWARE from the MANUFACTURER). in regard to the second type some phone are better than others : can unlock the bootloader easily, with provided tools (no need for exploits).
If the bootloader can be unclocked you can always go the aosp/custom way, but there will be a point where that won't work, mainly because of the non opensource components.